But What About the Slump?

Simon’s reaction to Obama’s speech last night is up at The New Republic.I think Simon and I agree that the speech was strong on long-term issues, but did not shed much-needed light on how we can emerge from our short-term challenges. One way to position this is to say that if we really are facing a potential “lost decade,” then talking about the long term is a bit premature. Imagine ten years of zero real GDP growth as opposed to 2.5% real GDP growth (with population continue to grow at 1-1.5% or something like that). That would take decades to make up (if it is even possible) and could outweigh any well-meaning efforts to bolster our long-term government finances.

On the other hand, I’m a bit more positive than Simon, because I wasn’t expecting the details of the banking rescue plan in a major speech to the whole country, for both practical reasons (I don’t think they are ready yet) and political ones (Obama wants to keep some measure of distance from whatever Geithner does). If I have time later today I’ll say something about the long-term issues.

Originally published at the Baseline Scenario and reproduced here with the author’s permission.